2006buslich10nat&termofk

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BUSINESS LAW IOUTLINE CHAPTER 10

NATURE AND TERMINOLOGY

Overview Roscoe Pound, [t] he social order rests upon the stability andpredictability of conduct, of which keeping promises is a large item. A promise is an

assurance that one will or will not do something in the future. A contract is apromise or a set of promises for the breach of which the law gives a remedy, or theperformance of which the law in some way recognizes as a duty. Contract lawreflects the expectations of our society in the manner in which parties are allowed tomake promises or commitments that are legally binding.

I. THE FUNCTION OF CONTRACT LAWa. The law encourages competent parties to form contracts for

lawful objectives.b. No modern life is entirely free of contractual relationships.c. Contract law is designed to provide stability and predictability,

as well as certainty, for both buyers and sellers in themarketplace.

d. Businesspersons rely on contracts for planning and ventures.e. Without contract law, people would have to rely on the good

faith of other, hardly encouraging to induce businessventures.

f. Contract law is necessary to ensure compliance with apromise or to entitle the innocent party to some form of relief.

g. A contract is a promise or a set of promises for the breach ofwhich the law gives a remedy, or the performance of whichthe law in some way recognizes as a duty.

h. Objective theory of contracts An intention to enter intoa legally binding agreement, or contract, is judged byoutward, objective facts as interpreted by a reasonableperson, rather than by the partys own secret, subjective

intentions.

II. ELEMENTS OF A CONTRACTa. Below are the basic elements that will be discussed fully

during the course.1. Agreement requires offer and acceptance.2. Consideration promises to the contract must be

supported by legally sufficient and bargained-forconsideration (something of value to each party).

3. Contractual capacity parties must possesscharacteristics that qualify them as competent parties.

4. Legality Ks purpose must be to accomplish some goalthat is legal and not against public policy.

b. Defenses to formation:1. Genuineness of assent consent of parties must be

genuine.2. Form K must be in whatever form the law requires;

some ks require writing.

III. THE OBJECTIVE THEORY OF CONTRACTSa. Intent is determined by objective standards, not by the

personal or subjective intent, or belief, of a party.


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b. Objective facts are determined by the reasonable personstandard, rather than individuals own secret, subjectiveintentions.

c. Objective facts include:1. What the party said when entering the contract.2. How the party acted or appeared

3. The circumstances surrounding the transaction (see theexample in the text concerning Jaffes car).

IV. TYPES OF CONTRACTSA. Bilateral versus Unilateral Contracts

a. All ks have at least two parties.b. The offeror makes the offer.c. The offeree is the party to whom the offer is made.d. A contract is classified as a unilateral or bilateral depending

on what the offeree must do to accept the offer and to bindthe offeror to the contract.

e. Bilateral contract (promise for a promise) the offeree mustonly promise to perform to accept the offer.

f. Unilateral contract (promise for an act) the offeree canonly accept the contract by performing under terms of thecontract.

1. Problems arise under unilateral contracts concerningrevocation; the modern rule is that the offeror cannotrevoke the contract after the offeree has begunperformance.

B. Express versus Implied Contractsa. Express contract terms on the agreement are fully and

explicitly stated in words, oral or written.b. Implied-in-fact contract conduct of the parties, rather than

their words, creates and defines the terms of the contract.c. Following conditions will create an implied-in-fact contract:

1. The furnished some service or property.2. The expected to be paid for that service or property,

and the knew or should have known that paymentwas expected.

3. The had a chance to reject the services or propertyand did not.

4. Homer v. Burman (224A)

C. Quasi Contracts Contracts Implied in Lawa. Quasi contracts (ks implied in law) are fictional contracts

created by courts and imposed on parties in the interest of

fairness and justice.b. Equitable, rather than contractual, in nature, imposed to avoid

the unjust enrichment of one party at the expense of another.c. Note: as in implied contracts, parties cannot be forced to pay

for benefits thrust on them.

D. Formal Versus Informal Contractsa. Formal contracts requires special form or method of creation

(rarely used).


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b. Informal contracts (simple contracts) all non-formalcontracts (most common).

E. Executed Versus Executory Contractsa. Executed contract a contract that has been fully performed

by both parties.

b. Executory contract the contract has not been fullyperformed by either party.c. A contract can be partially executed and executory by the

other party.

F. Valid, Void, Voidable, and Unenforceable Contractsa. A valid contract has the elements necessary for at least one of

the parties to enforce it in a court of law.1. Offer and acceptance of the that offer2. Legally sufficient consideration3. Parties have legal capacity4. Legal purpose

b. A void contract is not a contract at all.1. One of the afore-mentioned elements is missing.

c. A voidable contract is a valid contract that can be voided byone or both parties to the agreement.

1. A voided contract is unenforceable.

V. INTERPRETATION OF CONTRACTSa. One or both of the parties may disagree with the meaning or

legal effect of a contract.b. The courts look to the plain language of a contract to

determine its meaning.

A. The Plain Meaning Rulea. When a Ks writing is clear and unequivocal, a court will enforce it

according to its obvious terms (Plain meaning rule).

b. If the terms of the k are clear and unambiguous, the courts will notentertain extrinsic evidence.

B. Interpretation of Ambiguous Terms (Page 219)a. When the writing contains ambiguous or unclear terms, a court

will interpret the language to give effect to the parties intent asexpressed in their contract.

b. The following are the rules used by the courts in interpretingambiguous contractual terms:

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7.

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2006buslich10nat&termofk

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